But Peter Hume, they are not one and the same thing, are they?

>>are you in favour of fractional reserve banking, or against it?... [so] you are in favour of licences to print money substitutes<<

But you knew that anyway. You're just trying to wind me up.

Silly boy.

Earlier in this discussion I asked for a better explanation of the process by which banks create money out of nothing. Geoff Davies offered his explanation at http://betternature.wordpress.com/2010/03/15/how-banks-create-money-out-of-nothing/#more-231 and I have to say it IS better than others I have seen. Highly recommended to anyone wondering who to believe!

The present monetary system powered by the fractional reserve system of banking distorts and perverts the real economy.The richest institutions on the planet produce nothing.To make money by diluting other people's wealth through the fractional reserve system,is not a constructive nor ethically fair way of making money.

After WW2 they could have made the poor countries wealthy and secure,by letting them generate their own currency as well as borrowing from the West for machinery and technology.Instead the World Bank aided by the IMF loaned money to corrpt Govts not caring where the money went.Corporations could then get,energy,resources and labour for a song,since the debt had to be paid.

Aust is moving to a similar scenario presently.We sell off Govt assets for a song to pay for debt and now there is almost nothing left to sell.Victoria power stations owned by the British interests are making record profits while business/individuals here,feel the greedy squeeze.

If the West did the right thing after WW2 and respected the sovereignity of other countries,living standards around the planet would have risen,and the population pressures and pollution of today would not be an issue.

Instead of spending money on arms and economically enslaving people via debt,it could have been so much better for everyone.
Greed and the lust for power rules the planet.Reap what you sew

*But that can be deposited at another bank and a second loan made against it of $83. And so on until up to $1250 is loaned (with the 8% reserve requirement you seem to have assumed).*

Geoff, absolutaly, but when that 83$ is deposited at another bank,
that bank once again has to pay interest. And so on. So the money
supply increases, in that sense money is created, but it is the
same money going in and out of banks. They pay interest on it,
they don't have it for free, unless you leave it sitting in
your cheque account doing nothing.

If you examine the Westpac figures you'll find that the banks overall
work on a spread (diff between the cost of money and interest
received), of a little over 2%.

In fact for some loans they pay more then what they charge for
housing loans, such as loans to business etc. There they can charge
10% or similar. About 40% to half of all money lent out by banks,
comes from overseas loans, which cost them more then domestic
deposits.

*True, but only those workers who have significant super*

Geoff, combined workers have something over 1 trillion $ worth of
super, which is about the value of the ASX. In other words, workers
basically own Australian industry, including banks, to a large
extent.

Yabby, your explanations are cohesive. I would be interested in your assessment of why then, Westpac failed its fiduciary duty of integrity, to pass on the discount it received from the international wholesale markets, to its consumers, as reflected by the statistics I quoted in my post on Page 3 of this thread?

Does it retain a fluid policy relating to such transactions? Or was it just being greedy and dishonest, when the significant competitive advantage it realised from the discount it received from those wholesale markets, owing to the Govt guarantee, effectively allowed it, and the CBA, to squeeze the regional banks out of the market?

Ngarmada, I think that is an interesting question, but frankly I
don't think that the big 4 did anything wrong. What you saw when the
GFC crisis hit, was a massive flight to quality, by investors and
mum and dad deposit holders alike.

Westpac was commonly referred to, among the financial community,
as the safest bank, due to its previous CEO, David Morgan. Morgan
had seen hard times and remembered the early 90s, so he kept warning
about the chance of a crisis. The result was that Westpac took less
risks when it came to loans, then did some other banks. Short term
that may have cost them in profitability, but long term it paid off.

The first thing that the big 4 did when the GFC hit, was cut their
dividends to shareholders, by around 30% or so, IIRC. Next they put
their hand out to shareholders, to raise billions of extra tier 1
capital, so that they had reserves to handle any problems.

The Govt guarantee did not make overseas funds any cheaper then
they had been in the past, it helped the banks raise their continuing
need for more rollover funds, at lower rates then the crazy rates
being quoted without it. Banks paid a fee, I gather that the Govt
earned a billion$ from those, without paying out anything. The
Govt charged AA rated banks less then BB rated banks, so small banks
would have suffered from the higher cost of the guarantee.

When overseas banks, mortgage brokers etc, abandoned the lending
market, as their overseas funding was cut off, those seeking loans
went to those who had money available and those who had it available
were CBA and WBC, as they both benefitted hugely from the flight to
quality.